[ASK 2018 SUMMIT Panel Talks] Korean LPs eying Asia and secondaries PE deals

  • 2018-06-04

The Teachers’ Pension and the Military Mutual Aid Association (MMAA) are turning to the Asian private equity market with focus on growth sectors such as IT and healthcare, as they remain wary of high valuations in global PE markets, said their senior officials.

The Government Employees Pension Service (GEPS) and the MMAA will chase secondaries private equity deals to keep steady cashflows, while the Korean Teachers’ Credit Union is gearing up to expand buyout investments.

The following are remarks from senior officials of key South Korean pension and retirement funds in panel discussions during the ASK 2018 Private Equity & Debt Summit in Seoul on May 29.

▶Teachers’ Pension (Young Sin Jeong, head of global alternative investment team):

Young Sin Jeong

Young Sin Jeong

“Our PEF investments had been focused on global funds for North America and Europe. North America accounts for 50 to 60% and Europe 20 to 30%.”

“Going forward, we will invest in Asia through funds of funds. We will select management companies investing in growth sectors such as IT and healthcare.”

“By strategy, we will focus on mezzanine and private debt funds.”

“We need to take a conservative approach to PE because valuations in PEF markets are topping pre-financial crisis levels. We are looking at PDF markets which provide stable returns. Early this year, we deployed investment in direct mezzanine loan in Europe.”

“PE portfolios at home and abroad represent about 5% of our total financial assets, worth 700 billion to 800 billion won. Of global alternative investments, real estate makes up 50%, PEF 35% and infrastructure 15%. We will reduce the proportion of real estate and expand the proportion of PEF.”

“For global investment, we are preparing to re-invest in co-investment and multi-strategy of outperforming general partners to which we have committed before.”

▶Military Mutual Aid Association (Ki Pum Kim, team manager):

Ki Pum Kim

Ki Pum Kim

“We are not looking at the PE sector aggressively, but will continue to invest in them for high returns. Because of the J-curve effect and cash shortage, we focus on secondaries.”

“By region, we prefer Asia. We target mid and small-cap PEFs. By sector, we are looking at those related to the fourth industrial revolution.”

“In alternative investment, management skills make a big difference. If there is an investment company with an excellent strategy, we will invest mainly with the company.”

“Considering valuations concerns for PE, we are trying to find a general partner which has either experienced a financial crisis in the past, or has plenty of value-adding experience.”

“PE accounts for 15% of our alternatives, about 800 billion won. We have no target ratio.”

“As oil prices rebounded recently, it would be difficult to look at the energy sector right now. But in a contrarian view, it may be the time now to invest in energy.”

“Small-size GPs are difficult to beat bigger rivals. In the GP selection process, we have separated them by size strategically. We will consider working in a similar way going forward.”

▶Government Employees Pension Service (Woncheol Suh, head of private market investment division):

Woncheol Suh

Woncheol Suh

“We still prefer secondaries to primaries which require capital investment for longer periods. We prefer credit to equity. We will try to give a new mandate for secondaries investment this year. Because of low liquidity and the J-curve effect, we are selectively approaching PE investment.”

“PE investments at home and abroad amounted to about 450 billion won, the second biggest after real estate. Undeployed capital tops 400 billion won.”

▶Korean Teachers Credit Union (Taebok Kang, senior manager):

Taebok Kang

Taebok Kang

“We are increasing allocation to expand buyout investment from this year on the belief that we have constructed an income-generating portfolio.”

“We are closely looking at buyout firms with a track record and experience built in a certain sector. We are also looking for an investment opportunity in a large-cap buyout fund.”

“Our global PE team’s AUM is 3.5 trillion won in commitments.”

▶KB Insurance (Woong Hwang, investment manager):

Woong Hwang

Woong Hwang

“The PE market has abundant liquidity. Despite rising competition, there is room for valuations to rise further, depending on demand and supply of capital.”

“Private sector-led liquidity is shoring up the US market which is now in a very stable condition. Considering low company default rates and the prospect of corporate value growth in the long term, the current credit cycle may be extended further.”

“For LPs, it is time to invest in a PEF with a good ability in company selection. We need to take a close look at how they perform strategy, rather than their track record.”

By Donghun Lee and Daehun Kim

leedh@hankyung.com

<Edited by Yeonhee Kim>

(Updated to add the last two paragraphs for the Military Mutual Aid Association)